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Even With Record Cattle Prices, Value of Gain is Key

May 01, 2005 00:00

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It is spring and that time of year when many producers who operate winter stocker enterprises start to consider moving calves off cool-season pastures and into marketing channels. With cattle prices at record levels, one might conclude that not much effort or study is needed to determine the best time or best weight at which to sell cattle — sale time will come when pastures quit growing and are grazed out.

Each week, as market news information becomes available from state auction markets, it is interesting to note what the market is paying for gain at various calf weights. The long-term average is roughly 55 cents per pound of gain. For example, if the price of a 500-pound calf is $1.40 per pound and the price of a 600-pound calf is $1.26, the value of those 100 pounds of gain is $56 or 56 cents per pound. Some may consider the value of gain to be worth $1.26 per pound — the price per pound of the calf being sold. However, the difference in the gross value (500 lbs. x $1.40 = $700 and 600 lbs. x $1.26 = $756) of the two weights ($756-$700 = $56) divided by the amount of gain ($56 ÷ 100 lbs. = 56 cents) is the true value of the incremental weight gain.

Even though the average value of gain is about 55 cents per pound at all weights, generally, the value of gain increases as the calf gets lighter and decreases as the calf gets heavier. For instance, the value of gain may approach 75 cents per pound for the incremental gain from 300 pounds to 400 pounds. However, the value of the incremental gain from 700 pounds to 800 pounds may only be 25 cents per pound. These values would exist when the market is functioning normally. Unusual supply and/or demand situations can change normal values for gain.

High cost of gain in feed yards can encourage calves to stay in the country longer and gain more weight by offering higher-than-normal prices for grass gain at heavier weights. Or, if feed yards want to place calves on feed at lighter weights or if there is a shortage of summer grass cattle in the spring, the market may offer very high prices for gain at weights between 500 and 600 and very low prices for gain at heavier weights — maybe as low as 10 to 15 cents per pound. When these conditions occur, a stocker operator may want to consider marketing calves earlier than at the end of graze-out if an alternative income source exists for the un-grazed cool-season forage. As an example, if the market was paying 20 cents a pound for gain above 750 pounds and a stocker operator could bale the forage and receive an equivalent of 30 or 40 cents a pound for gain, then moving the calves to market early would make the most money. However, if there was not an alternative income source such as hay or grazing with another class of cattle, then, as long as the market was offering a few cents for gain, it would be profitable to continue adding gain to the cattle.

The cattle market has been moving rapidly in recent weeks. Rather than assuming that the market is good and profits will abound whenever you decide to sell calves this spring, consider analyzing the market news reports each week and calculate what the value of incremental gain is for different weights of calves. You may find out those last few pounds are not worth much.

Market report information for selected Oklahoma auction markets can be found in many newspapers or by calling (405)748-1812 or (405)236-5491. One Web site where cattle market information can be obtained is www.ams.usda.gov/LSMNpubs/index.htm. If you would like help in calculating the value of gain or developing a marketing plan, you're welcome to contact a Noble Foundation agricultural economist by calling the Ag Helpline at (580)224-6500, and please — enjoy these good times.

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